DHFL audit shows forbidden transactions

DHFL’S RBI-APPOINTED ADMINISTRATOR RECEIVED THE GRANT THORNTON REPORT ON FEBRUARY 12

MUMBAI: An audit of Dewan Housing Finance Corp. Ltd (DHFL) by Grant Thornton has indicated instances of “avoidance transactions” by the company and the auditor has informed the creditors about it at the last meeting on February 20, said a person aware of the development.

The Reserve Bank of India-appointed administrator, who received the Grant Thornton report on February 12, believes certain transactions are related to Sections 43, 45, 50 and 66 of the Insolvency and Bankruptcy Code (IBC), the person cited above said. These sections deal with preferential transactions, undervalued transactions, extortionate (on unfair terms) transactions and fraudulent trading, respectively and are collectively termed avoidance transactions.

The person, who spoke on the condition of anonymity, said that Grant Thornton presented some of the initial findings of the transaction audit, which has so far looked at the project finance portfolio. The slum rehabilitation authority (SRA) project loans are still being looked into by the auditor. DHFL’S assets under management were at ₹1.19 lakh crore, of which ₹63,690 crore is in retail loans and the rest in wholesale. R Subramaniakumar, a former Mand CEO of Indian Overseas Bank, was appointed by RBI as DHFL’S administrator.

“We were told that these transactions were undervalued and preferential in nature. However, the auditor is still reviewing some of the documents and the final report shall come after that is completed,” said the person cited above.

A resolution professional orders a transaction audit of a company under Section 25 (2) (j) of the IBC to find if it engaged in certain kinds of forbidden transactions. In a notice to stock exchanges on January 6, the administrator-managed company said, “The transaction auditor under the scope of work is also required to identify and review irregular borrower accounts from the angle of possible fraud”.

Interestingly, the administrator has also got in touch with former employees and directors of DHFL to check if they are aware of any such transactions. According to the person cited above, these employees have requested to meet the administrator and once their responses come, those will be shared with creditors. “It is a very novel way of finding out details of avoidance transactions by tapping former employees, some of whom might be disgruntled and are therefore likelier to spill the beans,” said the person.

Emails sent to Subramaniakumar and Grant Thornton seeking comments remained unanswered till the time of going to press.